289: The AI paradox (and 3 other trends shaping tech investing in 2026)

Costs dropped 90%. Funding got 10x harder.

It’s now much cheaper to build an AI product than it was two years ago — and far harder to convince investors your product has a moat.

In this episode, Sophia Matveeva breaks down the four investing shifts shaping who gets funded, who doesn’t, and why.

You’ll learn why vertical AI is winning, B2B beats consumer, acquisitions are replacing IPOs, and deal terms are getting riskier for founders.

If you’re building a tech product or considering raising capital, this episode will help you see what investors actually care about—before it’s too late.

In this episode, you will hear:

• Why it’s 90% cheaper to build AI — and still harder than ever to get funded
• How “AI for everyone” quietly kills your defensibility with investors
• The hidden reason B2B startups keep winning while consumer apps struggle to survive
• What today’s deal terms can cost you at exit if you don’t understand them now

 Resources from this Episode

• Tech for Non-Techies episode: 213. How NOT to sell your company
• YouTube: APIs for Non-Techies

Free AI Mini-Workshop for Non-Technical Founders

Learn how to go from idea to a tested product using AI — in under 30 minutes.

Get free access here: techfornontechies.co/aiclass

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TRANSCRIPT

[00:00:00] Sophia Matveeva: It's 90% cheaper to build an AI product today than it was two years ago, but it's significantly harder to convince investors that you have competitive advantage, and that's just one of the four major shifts happening in tech investing right now. Shifts that will determine whether your startup gets funded, how much equity you get to keep and whether you even get to exit.

[00:00:23] Listen to this episode for what you need to know.

[00:00:31] Hello and welcome to the Tech Phon Techie Podcast. I'm your host, Sophia Matveeva. If you're a non-technical founder building a tech product or adding AI to your business, you are in the right base. Each week you'll get practical strategies. Step-by-step playbooks and real world case studies to help you launch and scale a tech business without learning to code.

[00:00:55] And this is not another startup show full of jargon, venture capital, theater or tech, bro bravado. Here we focus on building useful product. That make money without height and without code. I've written for the Harvard Business Review and lectured at Oxford London Business School and Chicago Booth, so you are in safe hands.

[00:01:15] I've also helped hundreds of founders, both from concept to scalable product, and now it's your turn. So let's dive in. N hello, smart people. How are you today? We just wrapped up a class on the tech sector for a really prestigious global law firm, and the aim of this class was to help their lawyers understand their tech clients better, so they could really be smart strategic advisors.

[00:01:40] By the way, did you know that fancy law firms are called white shoe firms? I don't understand why, because nobody there was actually wearing white shoes. But anyway, uh, one of the things that we covered in the class was tech investing trends. So what are investors investing in and what are they staying away from?

[00:01:58] And we were teaching corporate lawyers, which is not the target audience of this podcast, but the insights are directly relevant for you if you are building a tech product or if you're leading innovation inside a company. Because if you want your CFO or an investor to invest in your project. You need to know what they're thinking.

[00:02:17] So let's start with the AI issue. It's kind of big, right? Are we in a bubble? Is the bubble about to burst? Well, I would say that we're kind of in a more discerning phase of the AI cycle than we were about six months ago, and the tech investing world has basically split into two camps. So there's one camp that believes that AI is going to replace everything, and then there's another camp that believes that AI is just a feature, not a product.

[00:02:46] And this is kind of the more discerning phase of the cycle where we kind of previously had people who were saying, oh, AI is going to change everything. And then we had some people who were saying AI is going to change nothing. So I think we've moved on to a slightly more sophisticated understanding.

[00:03:00] And so today I'm going to talk to you about the four tech investing trends and ai. AI is not all of them that we are seeing on the ground, but might. Dear Smart person, before we dive into today's lesson, I have a request for you. If you've listened to a few episodes and you haven't yet left a rating and review, I'm asking you to do so now because literally.

[00:03:24] For a review, you just need to use your thumb. You don't even need to use your whole hand. It takes five seconds and it really helps the show get found by other smart people like you. And it helps me and my team know that you are out there and that we are talking to real life people and that we're also in the right track anyway.

[00:03:42] So thank you very much for doing that in advance. And now let's get to the four tech investing trends we are seeing today. Number one, vertical AI is winning over horizontal ai. Okay, what does this, what does this mean? Well, basically, unless you already run open AI, or unless you already run anthropic, investors don't want AI for everything anymore.

[00:04:05] You have to have a niche. So they want AI for lawyers or AI for supply chains. They want specificity. And you know, if my American listeners say the riches are in the niches, and that's niches for the bread. And here's why. Basically, if your pitch is we use chat GT's API to solve this problem, the immediate question from any investor is, well, what's going to stop somebody else doing exactly the same thing tomorrow?

[00:04:34] Like, do you have a moat? And by the way, if you just heard API and you've never. You don't understand what that is, that's fine. Nobody's born knowing it, but it is an important concept, so you should know it. And I created a video about it on YouTube, which is linked in the show notes anyway. If you're in a position where investors are asking what's going to stop your competitor from doing exactly the same thing tomorrow, where is your, you have a defensibility problem, and that defensibility problem is getting harder and harder to answer these days.

[00:05:06] So let's look at the numbers, because the paradox is really brutal. So it's now 90% cheaper to build AI products than it was just two years ago. That's insane. What? Insane technological growth, what an age we're living in, so that's amazing. The barriers to entry have really collapsed, and you can spin up an AI powered app in days using tools that just didn't exist in 2023.

[00:05:34] This is critical. It is significantly harder to convince investors that you have sustainable competitive advantage. So one thing got easier, one thing got harder, costs went down, but defensibility became the number one question. So yes, with the age of AI businesses still hard. Basically, if you can't answer the defensibility question, you are not going to get funded.

[00:05:57] And that's obviously you have the magical persuasion powers of WeWork founder Adam Newman, who managed to convince investors that an office building was a tech company. I mean, I can't do that. I don't have those powers, and so just assume that you don't need that anyway. This is why vertical AI is winning because when you say, I am building this AI solution, which solves this problem for lawyers.

[00:06:20] You are not just slapping chat DPT onto a problem, you are building something that understands a specific workflow you are under. You are building something that maybe understands regulations and edge cases of that specific industry. And also, when you are talking about a specific industry, a specific target customer, you are also selling a go-to market strategy.

[00:06:42] And by the way, we have a really good lesson on go-to market strategy coming up. But when you are selling a go to market strategy to investors, you're basically saying, I know how to sell to lawyers and I have a marketing plan to attract them. And this is defensible. This takes time, and this takes domain expertise to replicate.

[00:07:00] This takes relationships, and this is why investors are more into it than, okay, I'm doing this thing for everybody. So basically, if you are building something with AI right now, ask yourself, am I building for a specific vertical or am I trying to be everything to everyone? Because everything to everyone is not a good idea unless you are basically already Sam Ulman.

[00:07:23] Here's trend number two B, two B over consumer, and that's the second major shift. There's been a pronounced move away from consumer apps towards business software, and this has really been happening for a few years right now where investors are really interested in B2B and enterprise and are very wary of consumer apps.

[00:07:45] Because B2B and Enterprise, that's basically where money and stability are. And you know, I see this all the time, our students, because you know, a student will come to me and say, a Sophia, I want to build this consumer app. It's gonna be amazing. Everybody's gonna love it. And even if. I think this idea is wonderful and I might use it myself.

[00:08:05] I literally have to say to them, okay, tell me about your customer acquisition cost. What's your retention strategy? How are you going to compete with companies that have billion dollar marketing budgets? And you might be thinking, well, okay, but Sophia, you know, there was Facebook and Instagram, these big companies, and then TikTok kind of seemed to come out of nowhere and become this massive competitor.

[00:08:26] Yes. And I think that's a wonderful thing. I'm gonna spend way too much time on TikTok, and you should follow us on TikTok. But anyway, the thing is, look at tiktoks story. They weren't a tiny little scrappy startup with no money. They had massive, massive funding from their parent company, and that massive funding allowed them to.

[00:08:48] Spend money on marketing and to get users. And yes, it is a great, great product. They have this great algorithm, but it wasn't just a great product, it was also a lot of money behind them. So basically, unless you have a super, super wealthy company backing you, just really be aware of your B2C idea because for example, let's have some more numbers.

[00:09:12] Did you know that around 40% of the money that B2C app founders raised from venture capital goes on advertising? Why do you think Mark Zuckerberg is so rich? So if you are building a consumer product right now, you are going to face much tougher questions about monetization and about retention and about marketing, because investors know that consumer apps are really expensive to scale.

[00:09:35] They're fickle, and most of them do not make money. So if you actually look at the data, if you look at the unicorn companies today, most of them are enterprise software. About 10 years ago, most of them were consumer apps. So there is a shift in the market and the money is basically in the boring businesses like software as a service for accountants, because businesses pay for things that solve real problems.

[00:10:03] They have budgets, they have procurement processes, and then once you're in switching costs are high. So basically, if you are deciding between a consumer idea and a business idea, just know that the invest appetite right now is heavily. Heavily tilted towards B2B, and I know, I know that it feels fun making a cool consumer app, but do you know what's super fun?

[00:10:29] What's even more fun? Success and money in large quantities for both. Trend three, there is going to be more m and a and fewer IPOs. This is the third trend that we're seeing. We're seeing that big tech is acquiring startups rather than letting them go public. And a trend that has really been accelerating for a while is that companies are staying private.

[00:10:52] Longer than ever before. So previously companies would get to a certain level of funding runs, and then they would list their shares on the stock exchange, and that's called an IPO. That's actually happening less and now companies are staying private for longer and then basically getting bought out. So we're seeing companies that would've gone public five years ago.

[00:11:12] They're getting acquired. Or they're planning to get acquired. And another thing that we are seeing literally from all the market predictions is that 2026 is predicted to be a big year for m and a. And if you are at a later stage, or if you are already talking to investors, and investors want to know about your exit strategy, which is a really standard thing for them to ask about, basically you just need to know that.

[00:11:38] A predicted boom is gonna change your exit strategy because it changes the type of investors that you should be targeting from day one. Because if you're building with the assumption that you're going to list your shares on the stock exchange to IP. The market realities that you are probably going to get acquired.

[00:11:53] There are different investors that want these types of things. So you need investors who understand m and a exits. So have you, if you're speaking to investors, and you can literally say to them, okay, how many of your companies that have been in your portfolio have. Being acquired by a larger firm. Do you have relationships with acquirers Because, you know, VCs want you to get sold and if they have relationships with potential strategic acquirers in your market, then yeah, maybe they deserve a discount or at least, you know, be basically be nicer to them.

[00:12:27] So basically this is not just a headline. This is something that affects your fundraising strategy, your cap table, and ultimately your outcome. It also affects who maybe you want to have on your advisory board. You know, if you are thinking, okay, what we're going to have is a strategic acquisition, so we're going to have a big company in our sector buy us.

[00:12:46] You want them to know. You, you want, you know, when you're at a certain level, you want them to know that you exist, which means getting into some sort of relationship with 'em. Maybe having some of them on your advisory board, maybe having them invest in you. Maybe that investment is going to be money plus some sort of deal, which is then going to lead to an acquisition, by the way.

[00:13:10] If this sounds kind of interesting, but you are not really you, I'm kind of losing you. We could cover fundraising terms and deal terms, but that is quite complicated, so I'm not gonna delve into that until, unless you want me to. So if you want me to then tell me, and we'll make an episode on this and to tell me, you can write to me on LinkedIn, so just find me and connect me.

[00:13:32] Or you can write to my team at info at techon techies co. Okay. Speaking of deal terms, that's actually trend four. Trend four is that deal terms are getting more complex and this is really dangerous if you're not paying attention because you know there are convertible notes, there are safes, there are liquidation preferences, there's drag and tag participating.

[00:13:57] Preferred. Literally there are so many terms and these financing structures, they've become so intricate that many founders. Don't really understand what they're signing. And I've unfortunately met founders who didn't understand what they were signing and got completely screwed as a result. So this is not just a legal issue.

[00:14:17] This is literally like how much money do you get in your pocket? So, because you can raise money and then you can feel like, yes, you've won. And then later you can realize that the terms that you signed basically. Mean that you don't make anything or you make much less because of some stupid thing that you didn't, that you basically overlooked.

[00:14:36] So I've seen founders raise millions of dollars and then find out that because of some kind of liquidation preference, they're going to walk away with much less unless the company exits at a, you know, massive, massive valuation. So basically, if you are going to raise money, you have to learn this stuff.

[00:14:54] It is serious. It doesn't feel exciting because it's kind of like legal and financial terms, but it's not going to be boring when you realize you've lost a load of money because you didn't bother learning this stuff. So you need to understand what market standard deal terms look like today. And there's actually a founder who came on this very show who shared about how he lost half a million dollars because he didn't understand something in his contract when he sold his company.

[00:15:24] And it just seemed like a really tiny, tiny rule that just didn't really mean anything. But when he sold his company, okay, that's what, that's when he lost a lot of money. So listen to the gory details in episode. 213, how not to sell your company. And we've also looked it in the show notes. So this is one of those areas where you genuinely cannot afford to be ignorant.

[00:15:47] You need advisors, you need people who have done this before, people who are on your side because these decisions are permanent and sometimes they're impossible to fix. Okay, so what does this mean for you? Let's bring this back to you. What does this mean if you are building a tech product? What does this mean?

[00:16:02] If you are launching a tech venture in 2026, here's what I want you to take away from this episode. Understanding what investors are looking for helps you make smarter decisions about whether to raise capital. Or maybe not at all. So I don't, I'm not one of those people who's like, oh yes, you raised capital, great.

[00:16:19] That makes you successful. Actually, that doesn't, you know, what makes you successful having a successful business? So basically creating a business that has longevity, that has profits, and you know, that does take a long time. And sometimes it takes fundraising, other times it doesn't. Anyway, if you do decide to raise, it helps you understand how difficult it's gonna be so you can manage your expectations.

[00:16:42] So if you are. Broadly in line with these trends, it's going to be easier for you than you are not. It's going to be easier for you if you're doing enterprise than if you're doing B2C. Doesn't mean that you can't succeed with B2C. It's just going to be harder. So ask yourself these three questions.

[00:16:59] Question one, is what I'm building defensible? Or could a competitor replicate it within weeks? Question two, am I building for a specific vertical or am I trying to be everything to everyone? Question three, do I understand what market standard deal terms look like? Or am I walking into negotiations blind?

[00:17:24] And the founders who succeed aren't the ones who have the best ideas. Generally. They're the ones who understand how tech are business and capital markets to dissect. They speak that language fluently and they also have a lot of resilience. Remember what I said to you last week. Last week, I was telling you, do not do this.

[00:17:41] Do not start a tech venture unless you have already done hard things and unless you like doing hard things. Hard really. But what I talked to you about today, especially with the fundraising trends and the deal terms, if it sounds really complicated, it's fine. It's learnable like you can learn this. So it's not something that if you are overwhelmed right now, that's, it's not a solvable thing.

[00:18:07] You can totally solve it, but you actually just need to do the work to solve it. And so first of all, I'm gonna thank you for taking your time to learn. New skills today and to basically delve into something that is quite difficult. So I think that's, that's a really cool character trait. And just a reminder, if you found this episode useful, I would love it if you left this show a rating and a review, a rating of literally you just press some stars with your thumb.

[00:18:33] So we're gonna leave it here right now and I'm going love you and leave you and wish you wonderful day and I'm gonna be back in delight.